Amazon (NASDAQ:AMZN) is experiencing a surge in sales as a result of the COVID-19 pandemic. Customers avoiding making extra trips to the store are turning to the e-commerce giant for deliveries of essentials and other products. Given the recent resurgence of coronavirus cases in states across the U.S., people will likely continue to rely on Amazon an increasing amount.
The unexpected increase is making it difficult for Amazon to fulfill all the extra orders. In fact, it expects to be spending an estimated $4 billion in expenses in the next quarter to help fill orders while keeping its workers feeling safe. Still, people appreciate Amazon's reliability during a time of difficult circumstances. The company is hoping this leads to increased customer loyalty -- allowing it to recoup the investments during the pandemic in the long run.
Amazon's ability to deliver to your doorstep and your screen drives increase in Prime memberships
A key feature that draws people to the company is its Amazon Prime membership. The service offers free shipping on millions of items, access to its streaming service Prime Video, and other benefits in exchange for a monthly or annual fee. Importantly, Prime members spent an average of $1,400 annually in 2018, which was significantly more than non-prime members.
Amazon has already signed up 150 million members worldwide as of January. What's more, the surge in revenue as a result of COVID-19 means it likely added millions more since the start of the pandemic. Its subscription services segment, which includes revenue from Prime membership premiums, grew to $5.6 billion in the most recent quarter, which was higher by 29% from the year prior.
Moreover, its Amazon Prime Video is another enticing feature at a time when the demand for in-home entertainment is soaring around the world. Indeed, the streaming service experienced a 35% increase in audience in March. Netflix, which offers a similar streaming experience, added 26 million subscribers in its most recent two quarters. Admittedly, Netflix streaming service is ahead of the e-commerce giants in terms of available content. However, if Prime Video helped Amazon gain anywhere near those levels of subscribers, then 200 million members is a realistic target for 2020.
What this means for investors
Given that Amazon started with 150 million Prime members as of January, the recent surge in sales as a result of COVID-19, and the increase in demand for in-home entertainment, it is probable that Amazon will reach 200 million Prime members by the end of 2020. However, this will depend on the extent to which the pandemic keeps people in their homes during the rest of the year.
Still, the increase is significant for investors in this consumer goods stock. That's because not only do Prime members pay a subscription fee, they also tend to shop more than non-members do. The combination is a one-two punch likely to lift earnings for Amazon long after the pandemic has run its course.